Banking Supervision

Central Bank of Libya works to achieve the targets of stability in the financial and banking sector.

The Central Bank is committed to help maintain price stability, financial stability and to encourage conditions to support economic stable development in the national economy. The main focus is banking supervision using prudential tools to maintain a fair and stable financial and banking sector. Banks must adhere to the Libyan Banking Law accordance with the provisions of Law No. (1) 2005, described by three key sections:

Internal control of commercial banks through the systems of internal control(Risk Management, Compliance and Audit Departments).

Audit of banks by auditors according to the provisions of Article (83) of Law No. (1) 2005.

Law pertaining to the Central Bank of Libya concerning authority and supervision of commercial banks and cash.

Objective is to establish banking supervision and compliance:

The goal of supervision of commercial banks is to maintain the strength and integrity of the banking sector, in addition to financial stability. Protection of depositors’ money, preserving the rights of shareholder and ensure the ability of banks to contribute to the growth of the national economy is another key objective. The Central Bank of Libya has initiated a strategic plan during the period of 2009to 2011 in order to strengthen supervision authority over commercial banks operating in the Libyan state. The strategic plan was based on the application of basic principles for effective banking supervision according to the paper issued by the Basel Committee on Banking Supervision in 2006.

The plan focuses on one of the ten development initiatives which can be summarized as follows:

Development of a database and integrated efforts to enhance the control of office and field supervision.

Using information technology effectively and efficiently.

Stay up to date with banking supervision and macro-prudential developments in the field and constantly assess supervision tools, instructions and laws.

The exercise of banking supervision and coordination in the office and the field according to international standard.

Application of international accounting and audit standards to meet the goal of financial transparency and disclosure.

An adoption of an operational framework for the application of Basel 2 standards for capital adequacy.

Application of methods and mechanisms for banking supervision applied to consolidated banking groups.

Build and develop the necessary human resources for the implementation of banking supervision.

Management by objectives and performance rates.

Cooperate with regulatory authorities in other states.

Categories of banking supervision: –

Supervision over commercial bank are divided in two categories by the Central Bank of Libya:

Office Supervision :

The Central Bank of Libya monitors and follows up on the financial conditions of commercial banks through bank statements and financial information. The review process analyzes data, uses algorithms, and calculates ratios which are used as financial indicators to assess the financial situation and health of commercial banks. Office Supervision is a pillar and used as early warning sign system. Strengthening the oversight office is a key objective of the Central Bank of Libya imitated through the empowerment and education of its human resources. In addition, data analysis, the development of banking statistics and the monitoring of credit portfolio risk are used as tools of an early warning system.

Field Supervision:

Supervision missions are used to inspect commercial bank branches to maintain compliance of the banking legislation of the Libyan State. The integrity of the financial position in compliance with corporate governance standards is required and maintained using field internal audit missions. As a result of coordination between the control office and field, the health of the commercial bank is assessed and maintained based on the indicators of the CAMELS (capital, asset quality, management, profitability and liquidity). A comprehensive assessment of each commercial bank is completed and given a comprehensive score ranging between (1) through (5). The classification of scores is as follows : –

Strong

Good

Average

Poor

very weak

Upon examination and rating of a commercial bank, The Central Bank of Libya has the authority under Banking Law No. (1) 2005 to take appropriate and immediate action to make sure the commercial bank is in compliance.